2018 Miami Heat Free Agency Primer: What you need to know about the Heat’s salary cap situation

Heat players Hassan Whiteside, Dwyane Wade, Wayne Ellington and Bam Adebayo look from the bench during overtime against the Brooklyn Nets at the AmericanAirlines Arena in Miami on Saturday. (David Santiago/El Nuevo Herald/TNS)

MIAMI — With free agency upon us, here’s a look at the Heat’s salary cap situation.

Miami currently has 10 players under contract for 2018-19 who are due about $119 million (assuming Rodney McGruder’s $1.5 million salary is guaranteed by Saturday’s deadline, as expected). That puts the Heat way above the $101.9 million salary cap, very close to the $123.7 million luxury tax line and not in a position to aggressively pursue free agents.

How do we calculate the $119 million the Heat are already committed to in payroll — excluding cap holds — for next season? You arrive at that number only when counting the 2018-19 salaries of Hassan Whiteside ($25.4 million), Tyler Johnson ($19.2 million), Goran Dragic ($18.1 million), James Johnson ($14.7 million), Kelly Olynyk ($12.5 million), Dion Waiters ($11.6 million), Josh Richardson ($9.4 million), Justise Winslow ($3.5 million), Bam Adebayo ($3.0 million) and McGruder ($1.5 million).

Add all of those numbers up, and the Heat have about $119 million currently invested in their roster. When you use the 2018-19 salary cap of $101.9 million and subtract the $119 million Miami already has on its cap, it puts the Heat about $17 million above the cap and just $4 million below the $123.7 million luxury tax threshold entering the start of free agency.

That leaves the Heat with no cap space unless enough salary is shed to get them below the $101 million salary cap. Unable to sign players into space, Miami will have to rely on exceptions, minimum contracts, the power of Bird rights or even trades to fill out its roster.

What exception money do the Heat have this year?

They can use both the Non-Taxpayer Mid-Level Exception ($8.6 million starting salary) and Bi-Annual Exception ($3.4 million). But using either of these two exceptions triggers a hard cap at the apron, which is set at $129.8 million. In other words, the Heat would not be able to exceed a payroll of $129.8 million.

This is why the Heat will likely opt to use the Taxpayer Mid-Level Exception ($5.3 million) instead because it does not hard cap them at the apron, giving them spending flexibility. But if Miami uses the Taxpayer Mid-Level Exception, it can’t use the Non-Taxpayer Mid-Level and Bi-Annual exceptions.

The Taxpayer Mid-Level Exception can be utilized for contracts up to three years in length, with raises up to five percent of the salary in the first year of the contract.

The Heat have seven players from their 2017-18 season-ending roster who will become free agents Sunday: Luke Babbitt, Wayne Ellington, Udonis Haslem, Dwyane Wade, Jordan Mickey, Derrick Jones Jr. and Derrick Walton Jr.

Let’s go through each one …

* Without cap space and Babbitt’s Bird rights, the only options to bring him back is through a minimum contract or exception money. But it’s hard to imagine the Heat offering Babbitt anything more than a minimum deal.

* As for Ellington, it’s a little more complicated. The Heat have Ellington’s early Bird rights, which allows them to exceed the cap to pay him 175 percent of his 2017-18 salary of $6.27 million. That means Miami can offer Ellington a deal starting at $10.9 million, which is the max he can make with the Heat next season. But this will be a tricky situation because making this offer would push the Heat into the luxury tax unless other salary is shed.

* Haslem is still deciding whether to retire or return for a 16th NBA season. If he decides to come back, it’s expected to be on a $2.4 million minimum-salary contract.

* Wade is also still pondering retirement. Without cap space and his Bird rights, the options to bring him back are limited to a minimum deal or exception money. Re-signing Wade will probably require the Heat’s exception — likely the $5.3 million Taxpayer Mid-Level Exception.

* It doesn’t seem like Mickey is in Miami’s future plans. The Heat declined the $1.6 million team option on his contract in May, an option they would have picked up if they wanted to retain him.

* The Heat sent qualifying offers to Walton and Jones, making them restricted free agents and allowing Miami to match offers from other teams this summer. The moves were made with the intention of bringing back Walton and Jones on two-way contracts for the second consecutive season unless the Heat are forced to match standard contract offers they receive as restricted free agents. Two-way contract players do not count against a team’s salary cap.

In a perfect world, the Heat would probably like to re-sign Ellington, Haslem and Wade. But Miami’s salary cap situation will make that very difficult.

Bringing back Ellington (a max starting salary of $10.9 million), Haslem ($2.4 million minimum) and Wade ($5.3 million exception) could cost the Heat $18 million in combined 2018-19 salaries, which would put them about $14 million above the tax line if other salary can’t be shed. That would leave the Heat with a luxury tax bill of at least $26 million on top of their salaries if the rest of the team remains intact.

Miami will not go that far above the threshold for a roster that’s not considered a title contender, although it’s important to note that NBA teams have until the end of the regular season to find a way to get under the tax line before they receive the bill. So one of two things will probably have to happen if Wade and Haslem decide to return: Either the Heat will have to let Ellington sign with another team in free agency (because Wade and Haslem will be back on the roster if they choose to) or the Heat will have to shed salary to make room for all three,

As you can see, the Heat have no cap space and very, very little financial flexibility. The reality is Miami will be a quiet participant in free agency this year unless it’s able to shed major salary.

2018 Heat Offseason Preview

[Monday’s question: LeBron James could be on the move again, do the Heat have a chance of bringing him back?]

[Tuesday’s question: Will Dwyane Wade and Udonis Haslem return for a 16th NBA season or retire?]

[Wednesday’s question: Will 3-point specialist Wayne Ellington return to Heat?]

[Thursday’s question: With no cap space, can Heat turn to trades to improve roster?]

[Friday’s question: Does Hassan Whiteside’s contract make him untradeable?]

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